Ashburn Anstalt v Arnold

A contractual licence does not create an interest in land, but a purchaser may be bound by a constructive trust if its conscience is affected.

Citation
[1989] Ch 1
Court
Court of Appeal (Civil Division)
Year
1989
Subject
Land Law
Topic
Leases and licences

Facts

Arnold & Co sold a property, but under the sale agreement was allowed to remain in occupation rent free until the property was redeveloped, when it would be offered a lease of a shop in the new building. The property was later sold to Ashburn Anstalt, expressly subject to the agreement, and Ashburn sought possession. Arnold argued that it had a lease, or alternatively a contractual licence that bound Ashburn.

Legal principle

The Court of Appeal held that Arnold had a lease, so it was entitled to remain. However, Fox LJ went on to consider what the position would have been if Arnold had only had a licence. He said that a contractual licence is not an interest in land and does not bind a purchaser merely because the purchaser has notice of it. A purchaser will be bound only if a constructive trust is imposed because its conscience is affected, for example where it has expressly agreed to take subject to the licence in a way that creates a new obligation. A mere stipulation that a sale is subject to a licence is not enough. Errington v Errington was wrong on this point. The decision that there was a lease was later overruled in Prudential Assurance v London Residuary Body, because the term was uncertain.

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